LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. make the case for global economic integration
2. understand the evolution of the GATT and the WTO, including current
challenges
3. describe the advantages and disadvantages of regional economic
integration
4. understand regional economic integration efforts in Europe, the
Americas, Asia Pacific, and Africa
5. participate in two debates on global and regional economic
integration
6. draw implications for action
GLOBAL ECONOMIC INTEGRATION
Regional economic integration -
efforts to reduce trade and investment barriers
within one region
European Union – The official title of
European economic integration since 1993
Global economic integration - efforts
to reduce trade and investment barriers around
the globe
GLOBAL ECONOMIC INTEGRATION
General Agreement on Tariffs and
Trade (GATT) – A multilateral agreement
governing the international trade of goods
(merchandise)
World Trade Organization (WTO) –
The official title of the multilateral trading
system and the organization underpinning this
system since 1995
GLOBAL ECONOMIC INTEGRATION
Multilateral trading system – The
global system that governs international trade
among countries—otherwise known as the
GATT/WTO system
nondiscrimination – A principle that a
country cannot discriminate among its trading
partners (a concession given to one country
needs to be made availabe to all other
GATT/WTO members)
General Agreement on Tariffs and Trade
(GATT)
Bretton Woods Conference introduced the idea for
an organization to regulate trade as part of a larger
plan for economic recovery after World War II
GATT's main objective was reduction of barriers
to international trade through reduction of tariff
barriers through a series of agreements.
GATT was a treaty, not an organization
The functions of the GATT were taken over by the
World Trade Organization (WTO) which was
established during the final round of of the
Uruguay Round of negotiations in the early 1990s
World Trade Organization (WTO)
Established January 1, 1995, headquartered in Genvea,
Switzerland
World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations
At its heart are the WTO agreements, negotiated and
signed by the bulk of the world’s trading nations and ratified
in their parliaments
The goal is to help producers of goods and services,
exporters, and importers conduct their business
WORLD TRADE ORGANIZATION:
1995–PRESENT
General Agreement on Trade in Services (GATS)
services currently account for over 60% of global
production and employment, but represent no more than
20% of global trade
GATS was stimulated by the same objectives as GATT in
merchandise trade:
 creating a credible and reliable system of international
trade rules
 ensuring fair and equitable treatment of all participants
(nondiscrimination)
 stimulating economic activity through guaranteed policy
bindings
 promoting trade and development through progressive
liberalization
WORLD TRADE ORGANIZATION:
1995–PRESENT
Trade-Related Aspects of Intellectual
Property Rights (TRIPS)
Areas of intellectual property covered:
 copyright and related rights (rights of performers, producers
of sound recordings and broadcasting organizations)
 trademarks including service marks
 geographical indications including appellations of origin and
industrial designs
 patents including the protection of new varieties of plants
layout-designs of integrated circuits
undisclosed information including trade secrets and test data
Trade Dispute Settlement
GATT mechanisms experienced long delays, blocking by
accused countries, and inadequate enforcement
WTO addresses all three problems:

sets time limits for a panel, consisting of three
neutral countries, to reach a judgment

removes the power of accused countries to block
unfavorable decisions

WTO recommends that losing countries change
their laws or practices and authorizes winning
countries to use tariff retaliation to compel
offending countries’ compliance with WTO
rulings
WORLD TRADE ORGANIZATION:
Doha Development Agenda
A round of WTO negotiations to reduce agricultural subsidies,
slash tariffs, and strengthen intellectual property protection
that started in Doha, Qatar, in 2001—officially known as the
“Doha Development Agenda.” It was suspended in 2006 due
to disagreements.
launched in the aftermath of the 9/11 attacks
strong resolve to make free trade work around the globe to
defeat the terrorist agenda to divide and terrorize the world
first round in the history of GATT/WTO to specifically aim at
promoting economic development in developing countries
Goal: make globalization more inclusive and help the world’s
poor
Types of Regional Economic Integration
free trade area (FTA) - group of countries that remove
trade barriers among themselves while each still maintains
different external policies regarding nonmembers
customs union - imposes common external policies on
nonparticipants to combat trade diversion
common market - permits the free movement of goods
and people
economic union - members coordinate and harmonize
economic policies (in areas such as monetary, fiscal, and
taxation) to blend their economies into a single economic
entity
Types of Regional Economic Integration
Monetary union – a group of countries that use a common
currency
Political union – The integration of political and economic
affairs of a region
European Union
European Union (EU) - set up in the aftermath of WWII to
bring peace, stability and prosperity to Europe
Restrictions between member countries on trade and free
competition have gradually been eliminated, with the result that
standards of living have increased.
Some sectors of the economy (public services) are still subject
to national laws
Individual EU countries still largely have the responsibility for
taxation and social welfare
The single market is supported by a number of related policies
put in place by the EU over the years which help ensure that
market liberalization benefits as many businesses and
consumers as possible
North American Free Trade
Agreement (NAFTA)
free trade agreement between Canada,
Mexico, and the United States
tariffs on half of the exports and imports
among members removed immediately
remaining tariffs phased out by 2010
North American Free Trade
Agreement (NAFTA) – first decade
trade between Canada and the United States
grew twice as fast as it did before NAFTA
US exports to Mexico grew threefold, from $52
billion to $161 billion
US FDI in Mexico averaged $12 billion a year,
three times what India took in
Mexico’s US-bound exports grew threefold, and
its GDP rose to become 9th in the world, up from
15th in 1992
Mexico’s GDP per capita rose 24% during 1993–
2003 to over $4,000, several times China’s
Andean Community and Mercosur
Customs unions in South America:
Andean Community (1969) – covers western side of
South America
Mercosur (1981) – covers eastern side of South
America


Both regional initiatives have not been effective, in
part because only 5% - 20% of members’ trade is
within the Andean Community and Mercosur,
respectively
Their largest trading partner, the United States,
lies outside the region
CAFTA
United States-Dominican RepublicCentral America Free Trade
Agreement (CAFTA) 1995
Modeled after NAFTA, five Central American
countries: Guatemala, Honduras, El Salvador,
Nicaragua, and Costa Rica plus the Dominican
Republic
 Second largest US Export Market in Latin America
behind Mexico
FTAA

as a result of NAFTA all Latin American
countries (except Cuba) launched
negotiations with Canada and the United
States for a possible Free Trade Area
of the Americas (FTAA)

in 2005, Argentina, Brazil, Paraguay,
Uruguay, and Venezuela announced that
they opposed FTAA, thus undermining
the chances that FTAA would ever be set
up
Australia-New Zealand Closer Economic
Relations Trade Agreement (CER)

removed tariffs and NTBs

both countries agreed not to charge
exporters from the other country for
“dumping”

citizens from both countries can also
freely work and reside in the other
country
Association of Southeast Asian
Nations (ASEAN)



ASEAN’s main trading partners, the
United States, the European Union,
Japan, and China, are outside the region
In 2002, ASEAN and China signed an
ASEAN-China Free Trade Agreement
(ACFTA) to be launched by the early
2010s
Similar FTAs are being negotiated with
Japan and South Korea
Asia-Pacific Economic Cooperation
(APEC)





largest regional integration grouping by
geographic area and by GDP
21 member economies span four
continents
home to 2.6 billion people
contribute 46% of world trade ($7 trillion)
command 57% of world GDP ($21 trillion)
REGIONAL ECONOMIC INTEGRATION
IN AFRICA




relatively little trade within Africa
(amounting to less than 10% of the
continent’s total trade)
protectionism often prevails
frustration with a current regional deal
often leads to a new deal, usually with a
different set of countries
virtually impossible to understand the
various African regional deals
Building Blocks or Stumbling Blocks
In the absence of global economic integration,
regional economic integration is often
regarded as the next best thing to facilitate
free trade—at least within a region.
However, another school of thought argues
that regional integration has become a
stumbling block for global integration.
Does the WTO Really Matter?
Frustration associated with the collapse of the
Doha Round and other WTO initiatives hinges on a
crucial assumption that the WTO actually matters.
However, this assumption itself is now subject to
debate.
Academic research has failed to find any
compelling evidence that the WTO (and the GATT)
has a significantly positive effect on trade.